Maquiladoras in Mexico

28092006

An Internet search for the definition of the terms maquila and maquiladora will turn up quite a variety of ideas and interpretations.

The maquiladoras have created quite an emotional and political reaction on both sides of the US and Mexico border. They have been accused of stealing jobs from the US, promoting sub-standard working conditions, lowering wages, exploiting workers, and not contributing to the Mexican economy.

Despite the controversy, the maquiladoras are growing and thriving in Mexico. They offer attractive benefits to organizations that are seeking competitive production and assembly costs, skilled labor and Mexico’s proximity to the US market. Recently many transnational organizations that moved manufacturing operations to China in the 1990’s have moved back to Mexico due to cost and logistic advantages.
Maquila and Maquiladoras – definitions and activities

The term maquila comes from the Spanish term that refers to the portion paid (in grain, flour or oil) to a miller for milling a farmer’s grain.

Maquiladoras are legal entities under Mexican law, with special tax privileges, they provide service, assembly or manufacturing operations.

Maquiladoras are able to import raw materials or semi-processed materials from foreign countries, in order to service, process or assemble them in Mexico, and then export the finished product back to that country. These activities take place without the collection or payment of import, export or V.A.T. (value added tax) taxes.

The maquiladora program was created by Mexico in order for foreign organizations to take advantage of low labor costs in Mexico (primarily the USA), and to provide employment to Mexican workers in Mexico. Initially the maquila operations were located close to the US border. Currently maquila operations can be found throughout Mexico.

Maquiladoras can be 100% foreign owned, 100% Mexican owned, or a joint venture between Mexican nationals and foreign investors.

Maquiladoras are also known as twin plants, in-bond industries, export assembly plants and offshoring.

The maquiladoras in Mexico suffered from a crisis of plant closings in the 1990’s and early 2000’s as many companies moved operations to China. Since 2004, Mexico has seen a resurgence of the maquiladoras.

Check with your attorneys and accountants in Mexico about the specific benefits of the maquila program. As of September 2006, there were important legal changes (simplification and consolidation of government compliance and monitoring programs) that will affect current and future maquiladoras.